ARTICLE
How to rethink physician alignment – and improve margins – without breaking the bank
September 21, 2026
Read time: 10 min
Hospitals and health systems are confronting financial pressure from multiple directions: Medicaid funding cuts, 340B reimbursement uncertainty, the continued shift toward site-neutral payments, and the potential loss of enhanced ACA subsidies.
Against that backdrop, physician alignment deserves a place at the top of the fiscal agenda. It is a low-cost lever for improving financial and operational performance – and better still, there have been meaningful healthcare regulatory developments related to the physician self-referral law (commonly known as the Stark Law) and Anti-Kickback Statute (AKS) that have been underutilized since their inception1 that allow for novel strategies.
As new government policies and proposed changes erode health system reimbursement, it’s time for health systems to take a fresh look at long-term margin strategy. Your organization may already be using physician alignment for your clinical or recruitment approach, but it can do more, helping to diversify revenue sources, keep patients in your network, and strengthen performance.
A click deeper on policies impacting your organization’s bottom line:
The One Big Beautiful Bill Act is expected to reduce federal Medicaid funding substantially over the next decade, and uncertainty remains around enhanced ACA subsidies.
The Centers for Medicare & Medicaid Services (CMS), in its 2027 Hospital Outpatient Prospective Payment System (OPPS) and Ambulatory Surgery Center (ASC) proposed rule, proposed changing the payment formula for drugs acquired through the 340B program.
In that proposed rule, CMS also proposed paying for certain imaging services without contrast at off-campus hospital outpatient departments at the lower Physician Fee Schedule-equivalent rate. In the 2026 OPPS/ASC final rule, CMS eliminated the inpatient-only list, with a three-year transition starting with the reassignment of 285 procedures – and then proposed removing another 637 procedures in the 2027 OPPS/ASC proposed rule. These changes have many potential downstream financial implications: Certain commercial insurance plans could deny inpatient status and pay the lower outpatient rate, and there could be additional options for the same procedures to be performed in outside ASCs. Shifting cases out of the inpatient setting can also impact a health system in other ways, including DSH payments, IME/GME payments, 340B eligibility thresholds, Medicare bad debt, and state supplemental payment formulas.
1. Prepare for a more site-neutral environment
As site neutrality gains steam, services are increasingly moving out of hospitals and into clinics, ASCs, and other outpatient settings. Many health systems are already adapting, but there may be opportunities to take that strategy further by considering ASC, clinic, and physician alignment as a whole rather than approaching them as separate initiatives.
As reimbursement incentives change, health systems should evaluate whether a more nuanced physician alignment structure could strengthen network integrity and other system care goals. Options include ASC joint ventures, revised ASC-physician compensation arrangements, and group practice or clinic models that let physicians share in profits – often in combination.
How it could work:
ASC strategies can be designed to prioritize patient care and reward quality outcomes. Recent advisory opinion activity suggests there may be room for arrangements outside of traditional direct physician-ASC ownership, including structures that allow employed physicians to participate in the performance of an ASC enterprise. These approaches are fact-specific and warrant careful analysis.
Systems can also explore group-practice or clinic joint venture structures that better align physician productivity in a clinic environment.
There is no single model for every system. The right approach depends on the problem your organization is trying to solve, whether that is leakage to outside clinics, a limited outpatient or ASC footprint, or broader physician-alignment challenges. The Stark Law and AKS must be considered, but it is possible to develop structures that comply with their requirements.
2. Use compensation and contracts to strengthen alignment
Stronger physician alignment does not always require an acquisition, joint venture, or other capital-intensive initiative. Before going down those paths, your organization should consider whether existing physician compensation arrangements and contracts can be structured more effectively.
Traditional physician compensation models often deliver a salary and work relative value unit (wRVU) based compensation to physicians. While certainly a great starting point, there are other potential pathways and bonus structures that a health system could consider incorporating. Subject to a broader fraud and abuse review, such options might include a directed referral prong in employed or contracted physician contracts. CMS has even indicated that, from a Stark Law perspective, a physician could be paid a bonus or “withhold” contingent on the physician achieving a percentage (but not a number or value) of “in-network” referrals, so long as the payment otherwise meets the volume or value standards of an applicable Stark Law exception. (Other laws are potentially implicated, and specific requirements need to be satisfied under Stark Law.)
How it could work:
A health system or hospital can incorporate a directed-referral provision in a physician’s employment contract or PSA that allows for the physician to receive an additional bonus for achieving a certain in-network “keepage” threshold (with certain potential carve-outs). Such mechanisms can help align physician behavior with the health system’s network strategy while supporting operational and financial performance. This approach requires careful attention to Stark Law, AKS, and state-level requirements.
If structured strategically, these provisions can also provide the health system with meaningful insights as to why certain patients are migrating out of the health system.
Take advantage of low-hanging fruit that could save your organization time and capital. Determine whether the tools already in place can do more to support alignment and ensure your health system is able to maintain quality standards for your patients.
3. Use value-based structures to create more flexibility
The Stark Law and AKS value-based exceptions and safe harbors can provide additional flexibility for health systems looking to advance both clinical objectives and physician alignment. The exceptions and safe harbors create opportunities for health systems to design their own innovative payment models (which historically would have required CMS and OIG to issue fraud and abuse law waivers) to help incentivize shifts of patient care to a value-centric environment. Now, health systems and other providers can design similar constructs contractually – no need to register or create new legal entities.
Engaging in value-based care and structuring physician arrangements under relevant Stark Law exceptions and AKS safe harbors does not necessarily require a health system to take on risk. The exceptions and safe harbors can potentially apply even to traditional fee-for-service arrangements, as long as the endeavor arrangement meets certain requirements.
For instance, if certain regulatory requirements are satisfied, a physician compensation arrangement relying on a Stark Law value-based exception can take into account the volume or value of their referrals or pay compensation that is not necessarily commensurate with “fair market value.”2 But the value-based purpose must be genuine and commercially reasonable: The arrangement should advance care quality or another legitimate value-based objective rather than simply incentivize referrals.
How it could work:
Compensation arrangements with physicians can be structured to incentivize them to reduce avoidable hospital readmissions for a defined patient population by establishing care-coordination protocols and tying aspects of the physician arrangement to agreed-upon quality and patient-care objectives.
The underlying reimbursement may remain fee-for-service, while the arrangement is designed around a legitimate value-based purpose(s) by incentivizing the physicians to take (or in some instances refrain from taking) certain actions.
When structured appropriately, these models can support clinical goals while creating stronger alignment between physicians and the health system.
Hospitals and health systems face real financial headwinds, which lends new urgency to the old adage that “the mission is in the margin.” But not every path to stronger physician alignment runs through the capital budget. Leaders can act now by:
- Taking a more integrated approach to outpatient strategy
- Using compensation and contractual mechanisms more effectively
- Evaluating whether value-based structures provide additional flexibility
Start with your organization’s specific challenge and build the alignment strategy around it. With the right structure and appropriate fraud and abuse safeguards, your hospital or health system can strengthen physician relationships, improve patient outcomes, support financial performance, and position itself more effectively for a reimbursement environment that continues to evolve.
